Reuters
ANALYSIS-China's 3G standard could wither on the vine
12.04.08, 01:11 AM EST
CHINAMOBILE-TDSCDMA/ (ANALYSIS):ANALYSIS-China's 3G standard could wither on the vine
By Michael Wei
forbes.com
BEIJING, Dec 4 (Reuters) - China is expected to finally award third-generation mobile phone licences this month or next, but the chances of the country's own 3G standard taking off appear remote as the carrier developing it is already pinning its hopes on future "4G" technology.
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Yahoo! BuzzBeijing has worked hard to develop a homegrown 3G standard, known as TD-SCDMA, to promote its own industries and avoid hefty royalties demanded by companies behind the world's most widely accepted 3G standards, WCDMA and CDMA 2000.
China repeatedly delayed awarding 3G licenses while it worked on the broader task of reorganising the telecoms industry, something that began to take shape this year.
The imminent issuance of permits is regarded by many experts as marking the final phase of the sector's overhaul.
"China would be one of the last countries in the world to award 3G licences, so it's fair to expect that the lifespan of 3G technology wouldn't be too long," Sha Yuejin, vice president of China Mobile (nyse: CHL - news - people ) <0941.HK>, said at a recent telecoms forum in Beijing.
China Mobile <CHL.N>, the world's top wireless carrier with more than 440 million subscribers, was tasked by the nation's regulator with building a national TD-SCDMA network.
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Despite spending billions of dollars on the network, the company has been reluctant to promote the standard, which has reportedly suffered numerous teething problems, ranging from unreliable coverage to shoddy handset quality.
Many global phone and equipment makers such as Motorola (nyse: MOT - news - people ) <MOT.N> and Ericsson (nasdaq: ERIC - news - people ) <ERICb.ST> have also embraced the standard only reluctantly.
The result is that most of the biggest contracts to date have gone to China's top three players, Huawei Technologies [HWT.UL], ZTE <0763.HK> and Datang Telecom <600198.SS>.
Analysts and observers say China Mobile's true ambition is to get a jump on TD-SCDMA's 4G successor -- Time Division Long-Term Evolution (TD-LTE) -- in hopes the technology will mature enough by then to win global acceptance.
TD-LTE would be able to send data up to 50 times faster than TD-SCDMA, promising high quality video and audio for people on the move.
If TD-LTE takes off, China Mobile could reap significant cost savings, since TD-SCDMA phones and equipment do not incur the same licensing fees that Western-developed standards do.
"The most profound reason for China Mobile to promote 3G is to gain experience and pave the way for TD-LTE," said Tang Mingjun, a telecom analyst with Shenyin & Wanguo Securities. "China Mobile's real focus is on 4G."
Many observers have given TD-SCDMA low chances of success for years, saying WCDMA and CDMA 2000 have too big a head start.
They say the technology's late arrival may explain China Mobile's seeming reluctance to promote the standard, which has picked up a scant 300,000 users since its pre-commercial trial launch in eight Chinese cities in April.
3G OR NOT 3G?
China Mobile said last month that it had completed tenders for construction of the second phase of its TD-SCDMA network, reportedly worth 30 billion yuan ($4.4 billion). The expansion will bring 3G coverage to 38 cities by the end of next year.
Many say the operator may be spending the big bucks to gain experience with the technology and work out its problems to pave the way for a smoother transition to its 4G successor.
"China Mobile regards themselves as the world's best operator and wishes to drive future trends," said Wang Jing, secretary general of TD-SCDMA Forum, a Beijing-based industry association. "TD-LTE is a better opportunity to do so."
Establishment of worldwide 4G standards is not expected until October 2011, when the International Telecommunication Union (ITU) holds its next general meeting, said Zhao Houlin, deputy secretary-general of the global telecom organisation.
WCDMA developers Ericsson and Nokia (nyse: NOK - news - people ) <NOK1V.HE>, and CDMA 2000 developer Qualcomm (nasdaq: QCOM - news - people ) <QCOM.O> are all likely to lobby hard for their own 4G standards then. China Mobile has accelerated its expansion pace for TD-SCDMA, in the hope of getting TD-LTE global recognition as well.
The Chinese government has set a target of 100 million TD-SCDMA subscribers by the end of 2010, though some doubt that China Mobile can achieve that goal.
Under China Mobile's trial scheme, selected users, or so-called "friendly users", get a free TD-SCDMA handset and 800 yuan ($116) worth of credit each month.
But as many as 86 percent of trial users are unwilling to buy the TD-SCDMA handsets once their contracts end, a recent survey by the National Bureau of Statistics shows.
With scale a key to TD-SCDMA's growth, 1 million users would be a minimal base for an operator to carry out any meaningful operations, said Wang Tong, chief technology officer of Samsung Electronics's <005930.KS> China subsidiary.
"One million users is far less than adequate, but I think it will be a good starting point," said Wang whose firm has not made any money from TD-SCDMA-related business since tapping into the industry in January 2003. (Reporting by Michael Wei; Editing by Doug Young and Alex Richardson)
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